Merchant cash advance vs a business loan

2 min read

% of card salesMCA repayment

Factor rate, not APRHow MCA is priced

Fixed instalmentsLoan repayment

How repayment differs

A merchant cash advance (MCA) lends against your future card sales. You take a lump sum and repay it as an agreed percentage of every card transaction — so on a busy day you repay more, on a quiet day less. That flexibility appeals to retail, hospitality and other card-led trades whose takings swing week to week. A business loan is repaid in fixed instalments on set dates, whatever your takings, giving predictability but no give in a slow month.

The factor-rate trap

MCAs are usually quoted as a factor rate — for example 1.2, meaning you repay £1.20 for every £1 borrowed — not an APR. That looks simple, but because you repay quickly out of daily takings, the equivalent annualised cost can be very high. A factor rate of 1.2 repaid over six months is far more expensive, annualised, than the same rate over a year. Always convert to a comparable figure before signing: our factor rate to APR calculator does exactly that, and our APR vs factor rate guide explains why the two are not comparable at face value.

True cost side by side

	Merchant cash advance	Business loan
Repayment	% of daily card sales	Fixed instalments
Pricing	Factor rate (convert to APR)	Interest rate / APR
Slow month	You repay less	You repay the same
Typical total cost	Often high once annualised	Usually lower for equivalent risk

The MCA's daily flexibility is real, but you often pay dearly for it. For many card-taking businesses, a short-term loan or a revolving line delivers similar working capital at a lower total cost.

The Credicorp alternative

Credicorp lends to limited companies at a transparent rate you can compare like-for-like, with no factor-rate sleight of hand and no personal guarantee. If your takings genuinely swing hard, a Credicorp Flex line gives flexibility without the MCA premium; for a defined need, a business loan is usually cheaper than an advance. Register to apply. Educational content, not financial advice.

Frequently asked questions

Is a merchant cash advance expensive?

It often is once you convert the factor rate to an annualised cost. Because an MCA is repaid quickly out of daily card takings, a factor rate that looks modest can equate to a very high APR. Always convert it to a comparable figure and weigh it against a short-term loan, which usually costs less for equivalent risk.

What is a factor rate?

A factor rate is a simple multiplier, such as 1.2, meaning you repay £1.20 for every £1 borrowed. Unlike an APR it does not account for how quickly you repay, so a factor rate repaid over a few months is far more costly, annualised, than the same rate over a year. Convert it before comparing.

Who uses merchant cash advances?

Mainly card-led businesses such as shops, cafes, restaurants and salons, because repayment flexes with daily takings. The flexibility suits swinging revenue, but the cost is usually high, so it is worth comparing with a revolving credit facility or short-term loan first.